ATM, mobile payments can boost banks’ lending capacity, study finds

Automated Teller Machines and mobile money payments can positively impact the lending capacity of deposit money banks in Nigeria, a new study has found.

The study, titled “Financial Innovation and Performance of Deposit Money Banks in Nigeria”, was conducted by Tolulope Sopelola A., Ariyibi Mayowa E. and James A. Obadeyi.

The researchers said increased usage of the two digital banking channels enhanced banks’ loan-to-deposit ratio, indicating improved deposit mobilisation and lending activities.

“Automated Teller Machines (ATM) and Mobile Money Payments (MOM) exhibit positive and statistically significant effects on LDR, suggesting that increased usage enhances banks’ lending capacity and deposit mobilisation,” they stated.

However, the study found that National Electronic Fund Transfer and Point of Sale transactions had significant negative effects on banks’ loan-to-deposit ratio.

“In contrast, National Electronic Fund Transfer (NEFT) and Point of Sale (POS) show a negative and significant effect, indicating that their expansion may constrain loan growth,” the researchers said.

The researchers also found that web-based transactions and NIBSS Instant Payments had no significant relationship with banks’ loan-to-deposit ratio in the short run.

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They said the findings demonstrated that the effect of financial innovation on banks’ performance varied across different digital banking channels.

“Overall, the results support the broader empirical evidence by Ibe & Obialor (2022), Effiom & Edet (2022), and Ashiru et al. (2023), highlighting that the influence of financial innovation on bank performance is channel-specific and varies in the short run,” the researchers stated.

They recommended that deposit money banks increase their investment in ATM and mobile payment technologies because of their positive contribution to financial performance.

“In light of these findings, it is recommended that deposit money banks intensify investment in ATM and mobile payment technologies, as they contribute positively to financial performance,” they said.

The researchers, however, urged banks to reassess the operational frameworks for NEFT and POS transactions to improve their efficiency and support loan growth and effective liquidity management.

“At the same time, the adverse effects associated with NEFT and POS transactions necessitate a reassessment of their operational frameworks, with a view to improving their efficiency and aligning them more closely with the objectives of loan growth and effective liquidity management,” they said.